Capitalisation rates (cap rates) in the Asia Pacific (Apac) region saw some expansion in 1Q2024, as real estate investment volumes remained relatively subdued.

According to a May research report by CBRE, the region saw a 14% y-o-y dip in real estate purchasing activity in 1Q2024 to US$24 billion ($32 billion) last quarter. Japan was the most active market, with some 30% (US$7.4 billion) of total regional volume generated in the country.

CBRE attributes the muted Apac investment market to investors remaining cautious due to the delayed cuts in interest rates.

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In terms of cap rates, most Asian markets stayed stable, while Australia and New Zealand underpinned movements in the region, according to a separate research report by Colliers. Cap rates in cities across both countries registered growth in 1Q2024, particularly in the office and industrial sectors.

Among the different market segments, the office sector registered the most growth in cap rates across Apac, bolstered by Australia and New Zealand cities, along with growth in Beijing, Shanghai and Jakarta.

However, Colliers notes that Australian office transaction activity remained muted in 1Q2024, coming off the back of a 72% drop in transaction volumes last year. As such, it believes the slow sales signal a softening of office cap rates in the country.

Looking ahead, the delayed rate cuts, coupled with investors’ limited risk appetite, are expected to continue weighing on Apac real estate investment volumes. While investment markets remain robust in Japan, India and Singapore, CBRE believes the recovery in other major regional markets have been pushed back to late 2024 or early 2025.

Amid this environment, cap rates are expected to continue rising over the next six months. CBRE is forecasting cap rate expansion across most asset classes, with a higher magnitude of growth expected for decentralised and secondary assets.

“Investors should target buying opportunities in the second half of 2024 and focus on prime assets,” says Greg Hyland, CBRE’s head of capital markets for Asia Pacific. “This will support deal closure as purchasers aim to take advantage of pricing discounts before rate cuts arrive.”

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Henry Chin, global head of investor thought leadership and head of research at CBRE, notes that hotel and multifamily assets remain in demand among investors, along with prime assets in core locations across all asset types.